In a startling turn of events, rather than continuing its quest to extricate itself from the American telecommunications market, Deutsche Telekom, parent company of T-Mobile, announced yesterday its intention to acquire prepaid regional wireless carrier MetroPCS. While the complicated deal with allow both carriers to remain separate entities, at least initially, it ostensibly marries the country’s fourth and sixth largest carriers (by revenue); a move Deutsche Telekom hopes will allow better competition with the market’s larger players.
Like T-Mobile, MetroPCS also finds itself struggling. Though both companies are profitable, their smartphone catalogues are found wanting (no iPhone), their network technologies are substandard (no LTE), and both are hemorrhaging customers at an alarming rate.
Of course Deutsche Telekom is hoping the similar struggles of two competitors can magically turn into the success of one newly unified front, giving the new combined carrier the wireless spectrum, customer base, and financial security it needs to be able to compete and succeed against the marketplace duopoly of AT&T and Verizon…although I would wager Sprint is the only company that might have something to worry about here.
“We are extremely pleased to announce this transaction with MetroPCS, which enhances Deutsche Telekom’s position in the expandingU.S.wireless market,” René Obermann, Chief Executive Officer of Deutsche Telekom said in a statement.
“The T-Mobile and MetroPCS brands are a great strategic fit – both operationally and culturally. The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate, especially around the next-generation LTE network. We are committed to creating a sustainable and financially viable national challenger in the U.S., and we believe this combination helps us deliver on that commitment.”
The deal itself is quite complex, given T-Mobile’s status as a Deutsche Telekom subsidiary and the fact that despite Obermann’s enthusiasm about the strategic fit between these two companies, their network technologies are quite incompatible.
According to the agreement, which will see stocks switch hands between companies, MetroPCS shareholders will get $1.5 billion in cash and a 26 percent stake in the combined company, while Deutsche Telekom will own the other 74 percent of the company (and interesting move for the German company that publicly stated its desire to leave the American wireless market during the AT&T acquisition fiasco).
There will also be a “musical chairs” adjustment of management, with T-Mobile CEO John Legere tapped to captain this new ship, while MetroPCS CFO Braxton Carter is slated to retain his same role after the transition. There was no word about the fate of MetroPCS CEO Roger Linquist.
As expected, the deal is subject to regulatory approval from both the FCC and the Department of Justice, but look for this deal to go through given the general governmental aversion to the AT&T/Verizon duopoly.
For me, I’m keenly interested to see how this marriage of two mobile losers will play out, given that it won’t help advance T-Mobile’s position in the mobile market—it’ll still lag behind Sprint in both customer base and revenue—and neither company really brings anything new to the table—both are iPhone-less predominantly prepaid carriers. While it’s always been said that two wrongs don’t make a right, I would guess that two losers don’t make a winner either…although I could be wrong.